01—Abstract
Summary
Summary of the 10-K filed December 21, 2018. Cited figures are marked; the original filing is the authoritative source.
Broadcom Inc. (AVGO) filed its 2018 10-K report, detailing its operations as a global technology leader in semiconductor and infrastructure software solutions.
The company underwent a significant redomiciliation to the United States in April 2018 and completed a major acquisition of CA, Inc. for $18.8 billiona in November 2018. This acquisition marked a strategic shift towards becoming a broader infrastructure technology provider. The report highlights the company's diverse product portfolio across wired infrastructure, wireless communications, enterprise storage, and industrial segments, driven by strong OEM relationships.
Financially, Broadcom generated significant revenue in fiscal year 2018, supported by organic growth and contributions from the Brocade acquisition. However, the company carries substantial indebtedness, particularly following the CA acquisition.
Key risks identified include customer concentration, dependence on contract manufacturing, the cyclical nature of the semiconductor industry, and the successful integration of the CA acquisition. The company also continues to return capital to shareholders through dividends and share repurchases.
02—Key points
Key Highlights
- Completed the $18.8 billion acquisition of CA, Inc. to expand into infrastructure software.
- Redomiciled to the United States from Singapore on April 4, 2018.
- Acquired Brocade Communications Systems for approximately $6.0 billion in November 2017.
- Net revenue for fiscal year 2018 was $20.85 billion, an 18% increase year-over-year, driven by acquisitions and organic growth.
- Gross margin improved to 52% in fiscal year 2018 from 48% in fiscal year 2017.
- Significant customer concentration exists, with Apple Inc. accounting for approximately 25% of fiscal year 2018 net revenue.
- The company maintains substantial indebtedness, with total debt around $17.5 billion at fiscal year-end 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Broadcom kept $0.59.
- Revenue$20.85B100.0%
- Cost of revenue−$10.12B48.5%
- Gross profit$10.73B51.5%
- Operating costs−$5.60B26.9%
- Operating income$5.13B24.6%
- Interest, other & tax$7.12B34.2%
- Net income$12.26B58.8%
Where FY2018 revenue went
$20.85B- Cost of revenue: $10.12B, 49% of revenue
- Operating income: $5.13B, 25% of revenue
- R&D: $3.77B, 18% of revenue
- SG&A: $1.06B, 5.1% of revenue
- Other operating costs: $774.0M, 3.7% of revenue
Kept 25% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed December 21, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $20.85B$17.64B | +18.2% |
| Cost of Revenue | $10.12B$9.13B | +10.8% |
| Gross Profit | $10.73B$8.51B | +26.1% |
| R&D Expenses | $3.77B$3.30B | +14.1% |
| SG&A Expenses | $1.06B$789.00M | +33.8% |
| Operating Expenses | $5.60B$6.14B | −8.8% |
| Operating Income | $5.13B$2.37B | +116.6% |
| Interest Expense | $628.00M$454.00M | +38.3% |
| Net Income | $12.26B$1.69B | +624.5% |
| EPS (Basic) | $2.93$0.42 | +601.7% |
| EPS (Diluted) | $2.84$0.40 | +607.5% |
| Shares Outstanding (Basic) | 4.18B4.05B | +3.2% |
| Shares Outstanding (Diluted) | 4.31B4.21B | +2.4% |
05—Questions
Frequently Asked Questions
What were Broadcom's major strategic moves in fiscal year 2018?
Broadcom's two most significant strategic moves in fiscal year 2018 were the redomiciliation to the United States from Singapore in April and the acquisition of CA, Inc. for $18.8 billion in November. The CA acquisition represented a strategic pivot to become a more diversified infrastructure technology provider beyond its core semiconductor business.
How did the CA acquisition impact Broadcom's business segments?
The acquisition of CA, Inc., which closed at the beginning of fiscal year 2019 (November 5, 2018), led to a planned change in Broadcom's reporting segments. Moving forward, the company was expected to report three segments: semiconductor solutions, infrastructure software, and IP licensing. The infrastructure software segment would now include the acquired CA mainframe and enterprise software solutions.
What are the main financial highlights and risks for investors?
Financially, Broadcom saw strong revenue growth in FY18 driven by the Brocade acquisition and organic increases, with gross margins improving to 52%. However, investors should be aware of the company's substantial debt levels, particularly after the CA acquisition financing, and the significant customer concentration, with Apple being a major revenue contributor. Key risks include the cyclical nature of the semiconductor market and the challenges associated with integrating large acquisitions like CA.
06—Continue